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Explain how shifts in the demand and supply curves affect the market equilibrium price and quantity.
Greenland, an autonomous territory of Denmark, is the world’s largest island with a population of about people. The economy relies heavily on fisheries (accounting for more than of Greenland’s total exports), public sector services financed through grants from Denmark, and (increasingly) tourism. Recent explorations suggest that Greenland has untapped reserves of minerals and rare earth elements. However, high infrastructure costs and environmental considerations pose challenges to diversification.
Real GDP growth has been volatile due to changes in global demand for fish products and fluctuations in fish prices, while the population faces income inequality concerns. Recent debates in Greenland’s Parliament (Inatsisartut) focus on reforms to taxation and public spending, seeking to foster inclusive economic growth and reduce income disparities.
Table 1: Key Macroeconomic Indicators of Greenland (2018–2021)
Practice IB Economics Topic 2.3 Competitive Market Equilibrium with authentic exam-style questions for both SL and HL students. This question bank focuses on the exact syllabus content for 2.3 Competitive Market Equilibrium and mirrors Paper 1, 2, 3 style where relevant.
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| Indicator | 2018 | 2019 | 2020 | 2021 |
|---|
| Nominal GDP (bn DKK) | 15.8 | 16.5 | 16.3 | 17.0 |
| Real GDP growth (%) | 2.4 | 3.0 | -1.2 | 2.1 |
| Unemployment rate (%) | 6.2 | 5.5 | 7.1 | 6.4 |
| Gini coefficient | 0.32 | 0.34 | 0.35 | 0.35 |
| Government budget balance (% of GDP) | -2.2 | -1.5 | -4.0 | -3.0 |
Table 2: Fish Exports Data (2019–2021)
| Year | Fish exports (tonnes) | Average price per tonne (DKK) | Estimated PED for Greenlandic halibut |
|---|---|---|---|
| 2019 | 25 000 | 25 000 | -0.8 |
| 2020 | 24 000 | 27 500 | -0.7 |
| 2021 | 27 000 | 28 000 | -0.6 |
Table 3: Income Distribution and Taxation (2021)
| Income group | Share of total population (%) | Average annual income (DKK) | Tax rate (%) |
|---|---|---|---|
| Low-income | 25 | 140 000 | 35 |
| Middle-income | 50 | 250 000 | 40 |
| High-income | 25 | 600 000 | 45 |
Figure 1: Simplified market for Greenlandic halibut (2021)
Referring to Figure 1, assume the world price for Greenlandic halibut rises from DKK per tonne to DKK per tonne. Using the PED value of for 2021 from Table 2, calculate the approximate percentage change in quantity demanded for Greenlandic halibut.
Define the term “progressive tax.”
Draw a Keynesian AD/AS diagram (with an upward sloping AS curve) and explain how an increase in government spending (funded partly by Danish block grants) could affect Greenland’s real GDP in the short run.
Using Table 3, calculate the total income tax paid by the low-income group in Greenland in 2021. Assume of the population and that each earns the stated average income. Show your workings.
Using information from the text and Tables 1 and 3, explain two reasons why persistent inequality (as indicated by the Gini coefficient and tax data) could be harmful to Greenland’s long-term economic growth.
Using the text/data provided and your knowledge of economics, recommend a policy that could be implemented by Greenland’s Parliament to reduce income inequality and support long-term economic growth. Justify your recommendation.
